ByBit, one of the world’s leading cryptocurrency exchanges, successfully navigated a potential industry-shaking crisis earlier this year, following a $1.5 billion hack in February. Speaking at the company’s annual keynote on 6 August, CEO Ben Zhou revealed that robust third-party auditing played a pivotal role in maintaining customer confidence and safeguarding the exchange’s operations during the turbulent period.
Bybit CEO Ben Zhou
Zhou highlighted that while other exchanges have faltered under far smaller losses, ByBit’s commitment to monthly proof-of-reserve reporting and the verification of assets by independent auditors helped the company weather a potentially catastrophic event. “Ever since the fall of FTX, we’ve implemented monthly proof-of-reserve reporting, and during this hack, our third-party auditors were able to verify that our assets remained fully solvent,” Zhou said. “That made a huge difference in how we got through it.”
Averted Black Swan Event
The February hack, allegedly carried out by North Korea’s Lazarus Group, bore the hallmarks of a potential black swan event capable of sending shockwaves throughout the crypto market. Historically, similar breaches have triggered liquidity crises and widespread panic among investors. However, ByBit not only survived the incident but ensured that customers did not experience any losses.
Industry observers have credited ByBit’s transparency and financial preparedness with preventing a repeat of the contagion effects witnessed during the FTX collapse. Hacken, the auditing firm tasked with reviewing ByBit’s reserves, confirmed that the exchange maintained a reserve ratio exceeding 100% in the aftermath of the hack. This financial buffer, combined with emergency crypto loans from other exchanges, ensured ByBit could meet a surge in withdrawal requests without jeopardising operations.
The Role of Third-Party Audits in Crypto Confidence
Third-party audits, though still uncommon in the crypto sector, are increasingly seen as a critical safeguard against systemic risk. ByBit’s reliance on Hacken to independently verify its assets provided both regulators and customers with a clear view of the exchange’s solvency.
Currently, ByBit and Gate.io are among the few major exchanges with publicly named auditors Hacken and Armanino, respectively. By contrast, Binance has faced criticism for relying on on-chain attestations rather than formal accounting audits, which some experts argue offer a narrower assessment of financial health. Coinbase and Kraken claim to undergo independent audits but have not disclosed the firms involved, raising questions about the level of transparency.
Lessons for the Crypto Industry
The February hack and ByBit’s response underscore a growing trend in the cryptocurrency sector: exchanges must prioritise transparency and independent verification to maintain user trust. Zhou’s remarks suggest that lessons from the FTX collapse have driven operational reforms across the industry, including regular proof-of-reserve reporting and closer engagement with third-party auditors.
By demonstrating that a major exchange can withstand a high-value hack without passing losses onto customers, ByBit has set a benchmark for crisis preparedness in the crypto market. The incident also highlights the potential role of industry cooperation, as liquidity support from other exchanges was instrumental in preventing panic withdrawals from escalating into a full-blown crisis.
As crypto adoption continues to expand globally, regulatory scrutiny is expected to increase. Exchanges that embrace transparency measures, including third-party audits and regular proof-of-reserve checks, may find themselves better positioned to weather market shocks and maintain investor confidence. ByBit’s experience provides a compelling case study for the broader sector, illustrating how proactive risk management and external verification can avert potentially devastating financial consequences.
